P&C Insurance Industry: SWOT
Natural catastrophes such as floods, wildfires, and hurricanes are potential threats to the U.S. property and casualty insurance (P&C) industry. However, the signing of the federal tax reform into law in 2017 ensures the profitability of companies in the industry as a result of the lower corporate tax rate.
- In 2019, the U.S. property and casualty insurance (P&C) market generated $60 billion in revenue, signifying a 66% rise from 2018.
- Within the first quarter of 2019, the industry generated a net profit of $34.8 billion.
- The market recorded $6.5 billion underwriting gain in the same period which is boosted by an "increased underwriting discipline, continued rate increase, lowers catastrophe loses, and an improving commercial and auto market."
- A report by Fitch Ratings opines that the overall direct premiums written in the U.S. P&C market would grow by 4.4%, while net premiums written would grow by 3.9% in 2020.
- The report also hinted that harder market conditions in the industry will prevail in 2020, where a hard market is defined as one in which "pricing and conditions are consistent with generating an adequate or better return on capital."
- This is as a result of companies adjusting their terms and conditions and/or implementing higher rates following two consecutive years of a low-interest rate and severe losses.
- The U.S. P&C market is highly fragmented with the top 10 groups having a 47% share of the market.
- As a result of this, insurers with higher capital look to acquire smaller insurers to increase their market share. This has pushed many smaller insurers out of business.
- This is responsible for the number of P&C filers in the U.S. dropping from 2,838 in 2008 to 2,583 in 2019.
- Furthermore, "stricter lending standards, low sales inventory, and slow growth in income to house prices" are factors contributing to the overall decline in sales in the U.S. P&C market.
- In 2017, President Donald Trump signed the federal tax reform which reduced the "corporate income tax rates of P&C insurers."
- This law continues to ensure a sustained period of profitability for companies in the P&C industry as a result of the lower corporate tax rate.
- The law encouraged companies to bring capital from foreign subsidiaries into the U.S. at lower tax rates.
- Technological development such as virtual and mobile claims adjusting to "remotely measure losses, quantify damages, and process customer payments more efficiently" presents an opportunity for companies in the U.S. P&C industry to reduce operational cost, improve customer experience, and improve competitive edge by
- Also, consumers in the U.S. are "compelled by law or contract to purchase property and casualty insurance". Therefore, there is an opportunity for companies in the industry to increase their customer base.
- The U.S. P&C market is constantly threatened by natural catastrophes such as wildfires in the southwestern and northwestern regions, and flooding in the midwestern regions around the Mississippi and Missouri rivers.
- In 2017, the industry recorded catastrophic losses of about $104 billion as a result of hurricanes Harvey, Irma, and Maria alone.
- The market is also threatened by "future premium increases, cyber risk, limitations on coverage."